Your guide to understanding and calculating ZAKAT

Your guide to understanding and calculating ZAKAT

Every Muslim community in the world needs a mechanism to uphold the pillar of Zakat, just as our mosques uphold the pillar of Salah. This is what we tasked ourselves with in 2013, when we launched the National Zakat Foundation (NZF) in Canada. NZF is now the premier Zakat institution for Canada s Muslim community, serving Zakat payers and recipients nationwide. By providing a complete Zakat service within Canada, NZF aims to achieve its vision of a pious, confident, selfless and self-sufficient Canadian Muslim community, where no individual in need is left abandoned. It is the only organisation providing an end-to-end Zakat service, encompassing Education, Calculation, Collection and Distribution of Zakat funds for the benefit of local, deserving recipients. This group includes some of the most vulnerable members of the community, including the homeless, refugees, single parents and the elderly. Our Aim Our aim is for every dollar of Zakat that should be paid by Muslims in Canada to be paid accurately and appropriately. We also strive to ensure that those living in our midst who are eligible to receive Zakat are not forgotten and that they are supported in the most impactful possible way. NZF distributes 100% of its Zakat funds in line with the Qur an and Sunnah, with its Zakat policies and practices being authenticated and audited by the Al-Qalam Shari ah Panel. 02

Some of the significant achievements of NZF 1 2 3 4 5 As of June 2013 NZF has raised over $400,000 of Zakat funds for distribution within Canada. NZF has made over 280 Zakat disbursements across Canada for families and individuals in dire need. Developed flourishing partnerships with food banks, charities and community groups to provide a holistic support service for those experiencing poverty. Established two Transitional housing projects (NISA Homes) for Muslim women who are dealing with abuse, homelessness or dire financial circumstances. Each housing project can accommodate up to 12 residents including children at any given time. Each housing project has staff to provide residents with support such as counseling, emotional assistance and financial planning for future sustainability planning. (Greater Vancouver Area & Greater Toronto Area) Established one recovery housing project (Straight Path Recovery House) for Men who are either recovering addicts or are homeless. This housing project accommodates up to 12 individuals at any given time. This housing project has 24 hour staff on duty at all times. They hold weekly group counseling sessions to stay away from their past. They are also provided other support so that they can become self-sustainable and become a valuable productive member of society once again. (Greater Vancouver Area). This guide: The shari ah accuracy of this guide, as well as NZF s Zakat disbursement policy, has been approved by the Al-Qalam Shari ah Panel. For further information please visit alqalam.org.uk. Al-Qalam Shari ah Panel: Mufti Zubair Butt, Mufti Barkatulla, Mufti Muhammad Ibn Adam Al-Kawthari, Mufti Yusuf Sacha, Imam Abu Eesa Niamatullah, Shaykh Abdul Qayyum and Shaykh Haytham Tamim. NZF would like to acknowledge 1st Ethical Charitable Trust s 2014 Zakat Guide as the core literature used in the preparation of this document. 1st Ethical is an educational charity which aims to benefit society by developing well rounded citizens. Its key projects, Ilm 2 Amal: Bringing Learning to Life and Halal Money, aim to build a generation of well rounded, confident, active and ethical Muslims to be ambassadors of their faith. Please visit www.1stethical.com for more information. 03

What is Zakat? Zakat is a compulsory act of worship that requires Muslims who own wealth at or above a certain threshold (called the Nisab) to donate a portion of that wealth, typically 2.5%, to those who are eligible. It is a right the poor have over the rich. The Nisab was set by the Prophet Muhammad (peace be upon him) at a rate equivalent to: 87.48 grams of gold 612.36 grams of silver. As of May 2015 this equates to approximately $4388.40 and $403.50 CAD respectively. See page 11 for details. Linguistically, Zakat is associated with purification and growth. The third of five pillars in Islam, its importance is such that in the Qur an it is mentioned 28 times alongside the observation of Salah, the obligatory prayer. Why is Zakat important? Islam encourages Muslims to seek halal employment and take part in entrepreneurial activity, but in order for commerce to benefit society, Islam places several obligations on those involved in wealth creation. Amongst these is the obligation of Zakat. Scholars state that the giving of Zakat has both an outer and an inner dimension. The inner dimension suppresses the ego, helping Muslims to overcome tendencies such as selfishness and miserliness. The outer dimension involves the purification of a Muslim s wealth and helping those in need. What is Zakat al Fitr? Zakat al Fitr (or Sadaqat al Fitr) is a duty that is paid on the occasion of Eid al Fitr and is required of every Muslim, whether male or female, minor or adult, as long as he/she has the means to pay. The head of the household may pay the required amount for the other members. Consult your local mosque for the recommended amount to pay per head. Who pays Zakat? Those required to pay Zakat must be: Adult (have reached puberty) Muslim (Zakat is not paid by non-muslims) Sane In complete ownership of the Nisab (see page 11 for details) Please note the three schools of thought other than the Hanafi school state that Zakat should be paid on qualifying wealth owned by the insane and children. 04

Who receives Zakat? The Qur an (9:60) specifies eight categories for the distribution of Zakat: 1. The poor 2. The needy 3. Those employed to administer Zakat 4. Those whose hearts are to be reconciled $ 5. Those in slavery 6. Those in debt 7. In the way of Allah 8. The destitute traveller The poor and needy are defined as those whose Zakatable assets are valued below the Nisab level and whose surplus non-zakatable assets are also valued below the Nisab level. Surplus assets are defined as any non-zakatable assets that are never used. Someone whose surplus assets are valued above the Nisab level, and who also has Zakatable assets valued below the Nisab level neither pays nor receives Zakat. Examples Zaynab is entitled to receive Zakat: Zaynab is a poor widow who owns the house in which she lives, but she only has $100 worth of Zakatable assets. Hence she is not liable to pay Zakat. She does however possess some surplus items which she never uses, such as a second sofa set and some cooking utensils. The value of these surplus items is $100 which, when added to her Zakatable assets, comes to a total of $200. Because this total figure is less than the Nisab, Zaynab can receive Zakat. Zaid neither has to pay nor receive Zakat: Zaid has valued his Zakatable assets at $200, hence he is not liable to pay Zakat. Zaid also has many unused, surplus items whose value easily exceeds the Nisab threshold. Zaid, therefore, neither pays nor can receive Zakat. 05

When is Zakat paid? Your Zakat year starts on the date your wealth first equalled or exceeded the Nisab. Zakat should then be calculated and paid after one lunar year has passed and every year thereafter on that date. If you cannot remember the date you first became owner of the Nisab, then the date should be estimated. If this is not possible, then a specific Islamic date should be selected arbitrarily and adhered to annually. Paying Zakat in Ramadan is not necessary, although giving charity in this month guarantees greater rewards. One Lunar Year The Islamic date your wealth first equals or exceeds Nisab Zakat due When should Zakat be distributed? 1 LUNAR YEAR Zakat should be paid as soon as possible once it becomes due. At the very latest, Zakat should be distributed one Islamic year after the due date as it is a sin to delay disbursement without a valid reason. Where should Zakat be distributed? 06 It is preferred to give Zakat locally if deserving recipients exist. This is based in part on the instruction that the Messenger of Allah (peace be upon him) gave to his companion, Mu adh, who was sent to spread the message of Islam in Yemen, O Mu adh! Inform them that Allah makes Zakat obligatory for them. (It is) to be taken from their rich and given to their poor. [Bukhari] At the same time, scholars allow for the distribution of Zakat to places where there is significant need. As Muslims living in Canada, it is important that we balance our giving between local and international causes, bearing in mind that our collective accountability for the poor and destitute within Canada is paramount and must not be forgotten. The number of those eligible to receive Zakat in Canada is increasing and such individuals have a right to the support of Canada Zakat payers.

How do I calculate my Zakat? Our calculator below will allow you to easily work out your Zakat payment. You can also visit www.nzf.ca/calculator to make your calculation online. Part Part Part Deals with your Zakatable assets Deals with your liabilities that can be deducted Deals with the final calculation Part Zakatable Assets 1 Cash and liquid investments $ Cash and liquid investments are fully subject to Zakat. You should include cash in all your bank accounts, in your wallet and under your mattress! If interest has been earned on your liquid investments, then it should be given to charity and only the principal amount should be noted for Zakat purposes. My total cash amount is: The value of my liquid assets minus interest is: 2 Gold and silver Gold and silver, in whichever form (jewellery, coin, ingots etc.) are subject to Zakat. The Hanafi school treats all gold and silver jewellery as Zakatable, regardless of whether it is worn or stored. If you own personal use items made from a mixture of metals, these are only liable to Zakat if half or more of the metal is gold or silver, although some scholars hold that the proportion of gold or silver in any owned asset is Zakatable. For your Zakat calculation, gold and silver can be valued at its resale value. This can be confirmed by consulting your local jeweller. The value of all the gold in my possession is: The value of all the silver in my possession is: 07

3 Shares, unit trusts & equity investments If shares are purchased with the express intention for resale then the entire holding is subject to Zakat at current market value. If, however, shares are purchased as long-term investment to generate dividends, then Zakat is only due on the Zakatable assets of the firm. A realistic attempt must be made to calculate the percentage of the share holding relating to Zakatable assets. Any dividends received should be added to one s cash balance for Zakat purposes. The total value of the Zakatable portion of my shares, unit trusts and equity investments is: 4 Property and other fixed assets The house in which you live is not subject to Zakat. If a property or other fixed asset has been purchased with the express intent to resell, then the entire value of the property/asset is subject to Zakat. If there is any other intention, then it is not subject to Zakat. Any rental income from properties owned should be added to one s cash balance for Zakat purposes. The total value of my Zakatable property and other fixed assets is: 5 Pension Zakat is payable in full on pensions received after retirement. For monies set aside for pensions prior to retirement, Zakat is only payable if the pension assets are being invested on behalf of the pension holder and if there is a specific quantum of wealth attributed to the pension holder. This is the case in money purchase schemes but not in final salary schemes. The Zakat liability will then be determined by the nature of the investment (property or shares etc. as per points 3 and 4 above). Please note, if pension monies are able to be invested, care should be taken to invest in a shari ah complaint investment. The total value of the Zakatable portion of my pension is: 08

6 Debts owed to you Zakat is payable on strong debts, i.e. money that is owed to you that you are confident will be paid. This may include personal loans to friends and family. This does not include outstanding wages, dowry, inheritance or assets held in trust (other than assets held under a Bare Trust). The total amount of money I have lent to others that I am confident will be repaid to me is: 7 Business assets Business assets are subject to Zakat. These include cash, finished goods, work in progress, raw materials and strong debts, i.e. money owed to the business that is likely to be received. All business assets should be valued at their current market price. For finished goods, this should be their retail sale price. For unfinished goods, this should be whatever price you expect the unfinished good to fetch on your Zakat anniversary date. My total cash amount is: The total value of finished goods for sale is: The total value of work in progress and raw materials is: The total value of money owed to the business that I am confident will be repaid is: My total Zakatable assets = $ Total 09

Part Liabilities 8 Personal liabilities Certain liabilities can be deducted from your Zakatable assets. These include outstanding or overdue living expenses such as rent payments, utility bills and debts. For long-term debt, such as mortgages or student loans, the non-interest or principal portion only of the forthcoming lunar year s worth of payments can be deducted for Zakat calculation purposes. However, because repayment of such debt is not required immediately and because such a deduction may even prevent someone who is relatively wealthy from paying Zakat, you may choose not to subtract any part of your long-term debts from your calculation. My outstanding or overdue basic living expenses that have not yet been paid for add up to: The forthcoming year s non-interest portion of my long-term debt is: My personal debts add up to: Money that I owe to third parties for completed purchases adds up to: Outstanding dowry owed and intended to pay is: 9 Business liabilities Short-term is less than 12 lunar months, and long-term is more than 12 lunar months. The total value of rent, bills and salaries outstanding or overdue is: The total value of outstanding short-term commercial loans is : The next year s non-interest portion of longterm business debt is: The total value of goods purchased on credit is: My total liabilities = $ Total 10

Part FINAL CALCULATION My net Zakatable assets are A - B $ $ $ So do I have to pay Zakat or not? Remember you only pay Zakat if your net assets equal or exceed the Nisab threshold. If you only have gold as an asset, then the Nisab measure for gold must be used. If, however, you have a mixture of assets, then the Nisab level for silver should be used. Although some scholars still maintain that gold should be used regardless, using silver is safer for the payer and more beneficial for the recipients of Zakat. Remember that the Nisab is either 87.48 grams of gold or 612.36 grams of silver. To find out the current monetary equivalent of the Nisab limit, it is necessary to establish the market rate for a gram of gold and silver. I have a mixture of assets. Today s silver Nisab is: $ Nisab The approximate Nisab values as of May 2015 are Gold $4388.40 and Silver $403.50 CAD If your net assets exceed or equal the Nisab then Zakat is due on 2.5% of total net assets. 2.5% 2.5% of my total net assets is: $ Zakat Due We ask you to consider donating your Zakat to those in need here in Canada. You can do this via www.nzf.ca/donate Additional Notes It is quite possible that your wealth may fluctuate above and below the level of Nisab during the year. If this is the case then Zakat is only due if wealth is in excess of the Nisab on your Zakat anniversary. Zakat is always paid on the assets owned on the Zakatable date, not on fluctuating amounts during the year or even an average amount. It is permissible to prepay Zakat for future years. However, at the time of payment, the intention must clearly be for future years. In addition, a Zakat calculation should still be made on the Zakat anniversary to make sure that sufficient Zakat has been paid. Missed Zakat payments for previous years must be paid as a matter of urgency. A realistic attempt must be made to calculate the Zakat due for each of the years missed. Last but not least, don t forget to intend specifically the giving of Zakat when you make your payment! 11

The complete service for Zakat payers: Learn Calculate Pay www.nzf.ca 1.888.693.2203 info@nzf.ca $